Sep 16, 2009

According to an article by James Picerno, we’ve been writing for months that the recession appears close to a “technical” finale but that the recovery would be slow, sluggish and generally vulnerable for an unusually extended period of time. Two stories in the latest news cycle echo our long-running commentary and. In fact, the pair makes the point better than we could.

According to Fed Chairman Ben Bernanke: “From a technical perspective, the recession is very likely over at this point” but “it’s still going to feel like a very weak economy for some time,” via MarketWatch.com.

The New York Times had a story that raised the question about how soon the housing market could function under its own power. At issue is a key piece of the government’s fiscal stimulus—the $8,000 tax credit for first-time home buyers. The Times observed, “When Congress passed an $8,000 tax credit for first-time home buyers last winter, it was intended as a dose of shock therapy during a crisis. Now the question is becoming whether the housing market can function without it.” Although housing is but one piece of the economy, its trials and tribulations capture a core element of the economic turmoil of late. It may be too much to say that the housing market is a bellwether for the general economy, but it’s close.

More to the point, the Times story reminds us of one of the potential drawbacks of stimulus, monetary or otherwise: markets may get used to the idea and so taking it away, which can cause secondary problems, depending on the exit strategy. That’s not to say that stimulus was unnecessary. But in the rush to smooth over the crisis of the past year, cleaning up the mess born of the emergency financial and economic surgery promises to be the new new challenge in the months and years ahead.

http://wallstreetpit.com/10423-book-end-challenge

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